Yahoo Finance SUTL Enterprise Limited's (SGX:BHU) Stock Has Fared Decently: Is the Market Following Strong Financials?
SUTL Enterprise's (SGX:BHU) stock up by 1.5% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to SUTL Enterprise's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for SUTL Enterprise
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for SUTL Enterprise is:
12% = S$7.5m ÷ S$62m (Based on the trailing twelve months to December 2023).
The 'return' refers to a company's earnings over the last year. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.12 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of SUTL Enterprise's Earnings Growth And 12% ROE
At first glance, SUTL Enterprise seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.5%. Probably as a result of this, SUTL Enterprise was able to see a decent growth of 16% over the last five years.
Next, on comparing with the industry net income growth, we found that SUTL Enterprise's growth is quite high when compared to the industry average growth of 3.2% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is SUTL Enterprise fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is SUTL Enterprise Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 46% (implying that the company retains 54% of its profits), it seems that SUTL Enterprise is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
Moreover, SUTL Enterprise is determined to keep sharing its profits with shareholders which we infer from its long history of seven years of paying a dividend.
Conclusion
Overall, we are quite pleased with SUTL Enterprise's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 2 risks we have identified for SUTL Enterprise.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
